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Exits not Exoduses

Notable members of Atlanta’s startup community are steadily draining away to greener pastures. We are in the midst of massive technology innovation, particularly in mobile and social applications, and the injection of games and game mechanics into most aspects of our lives. Sadly, Atlanta has been mostly a spectator in this wave of innovation, with little signs of change. We talk about the “clusters” we have, and what we are and are not good at.

Clusters sound magical and mythical, but I believe they can be quite simple for most purposes. You have a company with a highly successful exit. This makes the founders and some early employees wealthy enough that they don’t need to work ever again, and can spend some of their time investing in companies within their area of expertise and mentoring them. Many more employees make enough money from the exit that they will need to work eventually, but can afford to spend several months or years starting a new company without needing a paycheck. They happen to know the founders who invest in stuff, so they have a relationship with possible investors. Less sophisticated investors in the area invest in the people and sector because even if they don’t understand it, they know it was successful. Many more employees work at the exited company, forming a fertile labor pool to hire from. I think this mental model of clusters works for the purposes of most startup discussions.

The unfortunate message we have been sending in Atlanta is that if you aren’t in one of our favorite clusters, you’re doomed. And maybe you are doomed right now, but that needs to stop. Here’s why:

Jay Chaudry – Started and sold 4 significant startups in Atlanta in the early 2000s. I worked for Air2Web, which probably had the worst outcome of the companies he started, and they’re still around and seem to be growing.

Russ Jurney – super smart entrepreneur and hacker. Doing some really cool work with big data for LinkedIn. Expect him to do something even cooler in the future.

Nate Clark – another smart guy. Started a social networking company, Wamily, in Atlanta. Works for Pivotal Labs in SF.

Dave Williams – founder of BLiNQ Media and 360i, and another Shotput Ventures partner, seems to have moved off to New York. BLiNQ is still here, but I suspect Dave is gone for a while.

It’s not an exhaustive list, but it’s significant and probably represents a whole lot more brain drain that I don’t know or forgot to mention. We’re losing successful founders, funders, and builders, and for some reason, our state’s highest priority is often recruiting low-growth Fortune 500 companies.

Other data points and observations:

We are losing BIG when smart startup people leave. This tells us that our startup ecosystem is so far behind that it is worth them uprooting their family and abandoning their network to pursue opportunities elsewhere.

We are EXPOSED when outside money funds Atlanta companies. Most startup investors like to invest close to home. When outside money comes in, it means that the company is worth their investment and the inconvenience of long-distance investing. It means that there are other startups not being funded because local money does not see the opportunity.

Much of our best talent in business and software development is being wasted in mega-corps. The non-entrepreneurial types can still be invaluable to a growing startup, and are ripe for the taking when the startups are here.

Some of Atlanta’s currently most successful startups are bootstrapped and aren’t giving equity to employees, and have some of our best talent. So if the companies are home runs, these smart folks will have… jobs. No runway to build a cool startup.

It’s pretty easy for the smart sorts of developers you want building a startup to get into $100k annual salary territory here. Most of them already take a 10-20% discount vs market rates to work at funded startups in the area, if that’s their cup of tea. Asking them to work full-time and for free for a year if they really believe in a startup is a great idea is crazy unless they’re coasting on house money from a prior exit.

Most of the people I’ve seen go all-in on their startup have crashed and burned. Savings gone, massive debt, and they land in a big corporate job, probably never to return again. In Atlanta, it can be a dead end. Wonder why those developers won’t work for free?

I’ve had the privilege of knowing some great investors and advisors in Atlanta. I’ve also seen a lot of investors who want to invest in social web startups, but don’t even understand what Twitter and Foursquare are. It doesn’t take a “valley” pedigree to be smart money in this space. Open your eyes and do some research. You can become a pretty smart investor in this area by doing some research and some back-and-forth with other smart investors.

Some of the funded companies I have known have been funded by doing an excellent job convincing investors who don’t understand the startup’s business. Follower investors aren’t all bad, we just need more of them to do the homework to understand the business and lead.

Some of Atlanta’s smartest money doesn’t have a lot of money. Yet.

I may sound a bit down on Atlanta, but I’m also stubborn. I’m still here because I believe we can do better, and I want to be a part of it. Many other people have done much more to advance the case of startups in Atlanta, but I think we can and should do better.

We need to think bigger. We need to look at markets that are emerging and growing and figure out ways to target very big markets. Even many of Atlanta’s largest recent startup exits have been in somewhat small markets. Very few companies have been big enough ideas that could stand on their own rather than be acquired. There are very big markets out there, ripe for the taking. New markets are not beholden to “clusters”, they are the foundation of clusters.

In targeting big markets, we need real investors to step in at EVERY funding stage. Large markets will be pursued by many companies all over the world. Although the initial entry points and strategies will be different and may not need as much initial money, startups chasing big markets will need real early-stage money to grow faster than revenues and real venture money to chase the full extend of the market. I have been in under-funded Atlanta startups in very big markets. It’s painful. You can say the companies should execute smarter, but that implies the opponent isn’t smart too. That’s a bad bet.

We need entrepreneurs with visions to pursue big markets and visionary investors to enable that pursuit. We need exits that create positive feedback loops. I can’t blame anyone who has left, but we need people with the courage to stay after they have succeeded and perpetuate a cycle of big vision and success. We need exits, not exoduses.

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4 thoughts on “Exits not Exoduses”

Your comments echo much of what I have written. I have for a long-time been cursed with a strong interest in what went from early multi-media to web to Consumer Internet to mobile to …

I now find myself having to relocate to where the action is. Atlantans by and large are not early adopters of the new waves that interest me, and it’s understandable that local investors would stay in their SaaS B2B comfort zones.

I will remain a strong booster of the Atlanta startup community, and I may be back. Everything hinges on where the appropriate “clusters” make my future endeavors possible.

Rob, that is quite the informed and brilliant observation of the Atlanta “Tech” Scene.

I moved to Atlanta in January 2009 hoping to get plugged in to the tech community. As a former member of the Boulder, CO startup community and a Techstars 2007 alum who’s company was the first successful exit for Techstars, I have seen what Boulder has done to encourage the startup community to grow. I have also seen all of the problems with Atlanta’s startup community that you outlined. From my experience with Boulder and my observations of Atlanta, Atlanta’s issues seem to stem from community (Boulder is all inclusive and actively recruiting talent in all disciplines) and geography (metro-Atlanta is much larger, and tougher to navigate, than Boulder). Its TheSouth(TM) where everything is spread out a great distance so nothing will change that (except maybe real public transportation). But we should remove the clusters. With social becoming a more integral part of the SaaS / B2B and just businesses’ day-to-day operations, lines among technologies are blurring. So too should the clusters of the tech community.

From Open Coffee Club, Boulder/Denver Newtech Meetup, Techstars, Startup Weekend (remember it started in Boulder in 2007) to the Boulder.me movement (started by some of the same people that started Startup Weekend), Boulder keeps telling the country and the world about its community. And Boulder keeps building their community. The Boulder.me initiative has been a huge success and help in doing so. It centralized all the efforts of everyone in the Boulder tech community into one real, tangible event that was easy to “market” to other areas.

Having moved to Atlanta in hopes of finding a community ready for tech entrepreneurs, I am happy to say I was not completely let down. Organizations like ATDC, TAG/GRA, SEVC, etc are doing great work. And individuals like Lance Weatherby – whom I was following before my move to Atlanta and who helped me learn more about the scene – and yourself are instrumental in helping correct these issues. It will take all of us, some ego and pride swallowing and some hard work to make this area great. But it can be done. It should be done. Its the way forward for the metro-Atlanta area.

So what is the takeaway? You give some great points at the end of your post that we need all-stage investors, entrepreneurs to stay in Atlanta. However, I would add to that, we need the clusters to all meet, once a month, to show off the cool things we are building. We need open discussions before the work day begins on topics of interest to tech and traditional businesses. And we need a sense of community like Boulder. We need people to feel that if they pursue their “crazy” idea, the community will encourage it. We need an organization like Entrepreneur’s Foundation of Colorado (of which, my company was one of the first to sign up and make good on its equity commitment) here in Georgia.

But what we really need are investors that are educated and are willing to continue to educate themselves. But even if they do not, we need a community that will at least try.

We do need exits. But we also need a banding together of all the “clusters” into one, unified community, with one unified goal: That Atlanta is a great place for startups.

I just found this blog when I googled for “Atlanta technical co-founder” and the first link that popped up on the result page was this one. Obviously, I was researching for something about techies in Atlanta. And what’s more funny is that you have just recently wrote a new entry, whereas your previous entry was dated back in November of last year. Normally, to my impression, I’d consider this blog dead if it wasn’t for the recent update.

Well, I happen to have an idea for a tech startup and am dropping by the upcoming Friday night at GA Tech for its ACM Yahoo Hack Week event. And I also want to use this opportunity for making my pitch and searching for the right technical talents to be my partners. So if you, Rob, or any one else is viewing this blog, feels interested, come by and see us. The event is free since it’s sponsored by Yahoo.